Despite surface impressions, the field of accounting
requires an underestimated amount of background knowledge and communication. Based
on what I’ve been able to gather with almost two years of being in the
accounting program at BYU, I’ve decided that the following will address the
importance of understanding the history of accounting – supplemented with a few
historical examples and the importance of communicating effectively within the
field – broken in to two different contexts. Though these topics create a list
that is far from an exhaustive description of the important forms of
communication, I believe them to be critical based on my interactions with
accounting professors and an internship with the nation’s top accounting firm,
PwC.
History of Accounting
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| The tablet above holds accounting information dated as far back as 3200 BC |
Of all the things humanity has created – arts, theatre,
technology, medicine – keeping track of money/valuables is one of the oldest.
Even back to the days of the flood, Noah was instructed to take an accounting
of the Lord’s valuables (His creations, the animals). Down through Moses we
have records of accounting (i.e. the entire book of Numbers). Trade records and
bartering systems were all accounted for and assessed, if not on a social level
then on an individual one. Men have always been trying to be richer than his
neighbor. And how does he know he’s rich? He accounts for what he and his
neighbor have. In ancient Greece, officers were required to give
accountings of the fund entrusted to them at the conclusion of their service.
They were expected to properly manage the funds that had been given them. The
importance of wealth and stewardship were not lost on the Greek and so they
were sure to require an accounting of those who had been given so much. In
ancient Rome, accounting played a particularly important role in leading
the home. Fathers were expected to keep track of the accounts of the household.
Fortunately, the lack of credit cards and predating of shopping malls made
monitoring teenage spending significantly easier. Most purchasers were made with
cash; however, there are clear indication that receivables and payables were
set up with merchants and customers. As time lapsed into the medieval ages, we see
an apparent retrogression of the accounting systems however apparently
“Charlemagne had an elaborate system of accounting for income and expenditures
and required detailed reports from all his subordinates.” (Kester, 1917)
Accounting has been formalized and structured over the
centuries. In fact, in a more recent vein, the reliance on the way we account
for things has a tremendous impact on everyone’s daily life. The value we give
to different currency; the price floors and ceilings that certain markets and
commodities bear; and the amount of money we pay in taxes each year all depend
how we account for our money. On a nationwide scale, the most significant
change to the accounting system in recent history is the Sarbanes-Oxley act
passed in the wake of the Enron/Arthur Anderson debacle (Koehn and Stephen,
2004). This act revamped the way big businesses are allowed to account for
their money. How does this affect the average consumer? Corporation now have to
pay significantly more to have their accounts managed, these types of costs are
always passed on to the consumer.
Accounting has been around a long time, and will be around
forever. At the very least, men and women will always be required to give an
accounting of the labors, which very well may include how we spend our
money/substance.
Communication in Accounting
Two man avenues of communication exist in the accounting
field. The first is internal with our fellow employees and managers. The second
is with the customer or other external entities.
Internal Communication
Like the ever-ticking hands of an ornate grandfather clock,
the world of business clicks on at an undeviating and unrelenting pace. Only
the most competent and most exact companies survive the grueling grind of the
free market. This medium of exchange, for innumerable vendors and consumers,
demands specific type of communication -- a communication that one only
understands by understanding the nature of business itself. This nature has two
underlying fundamental principles that drive everything in the world of
industry – efficiency and accuracy. Companies must produce every product and
every service on time and to proper specification. Therefore, essentially all
material communication works to meet those ends.
For example, when management decisions are being made, a
team of executives will gather to discuss the issue. They do not mince words
and do not particularly care about how they come across to their peers. They
all have one goal in mind, discus the facts and reach the best conclusion for
the company. A high-performing, management team will set aside egos, pride, and
pleasantries, to optimize the efficiency and accuracy of their communication.
External Communication
Among the biggest firms, clients will need to pay an average
of $300 dollars an hour for accounting services. For clients that have large
tax returns, which are literally one and a half feet tall when everything is
printed out and stacked together, the firm can receive into the hundreds of
thousands in revenue. Naturally, these clients have tremendous leverage over
the firm in the sense that they can easily take their business to another firm
if the previous does not meet their expectations. This bargaining power engenders
tremendous focus on positive, client relationships. The firm will do everything
they can to ensure that they maintain a healthy association with all of their
clients – especially large ones. The following fictitious story illustrates the
need for respectful and tactful but effective communication.
Michael the a tax manager for PricewaterhouseCoopers has
longer had the Walt Disney Corporation assigned to him to ensure that their
corporate tax returns are always filed on time and accurately. Michael thoroughly
enjoys working with Disney as they almost never have any issues with how they
have classified and reported their income. This proficiency means that despite
Disney’s extraordinary size, filling out the tax returns is not overly complex.
However, Michael is a diligent employee and always double checks.
On one unfortunate day he discovers an error – a gross
error—an error of such blatant magnitude and nature that it would have unlikely
been missed by the usually meticulous Disney tax preparers. Perplexed, Michael
sends a quick email to his contact at Disney inquiring about the discrepancy.
He receives a reply in a uncharacteristically short period of time that
indicated he should not worry about the supposed error because it is not an
error due to xyz explanation. This made Michael even more concerned. Not only
would such an inquiry much more time to investigate than Disney took to
respond, very suspicious, but also the explanation made no sense. Michael
drafted another email that explained the error and politely elaborated on the
proper solution. Again, Disney responded quickly and tersely. They adamantly
reaffirmed their position and offered no further explanation. Michael knew he
would need more authority in his next correspondence. He called an IRS hotline,
available exclusively to the top accounting firms, received congruent advice.
He the drafted the following email:
Dear Sarah:
Thank you very much for your prompt correspondence over the
last few weeks. I am again writing regarding the allocation of income discussed
in previous emails. I apologize for any annoyance caused by my persistence on
this matter. I assure you my sole concern is to ensure that Disney avoids any
penalties associated with inaccurate filling.
Regarding, the allocation of interest income generated by
off-shore, related entities – specifically those related to Disney Cruise Lines
must be reported as ordinary income. The internal revenue code very clearly
states that all revenues received for engaging in the normal course of business
must be classified as ordinary income not income received from capital gains
despite the fact that Disney Cruise Lines is a capital investment that exists
independent of The Disney Corporation. Furthermore, I called the IRS to receive
further clarification about the proper allocation of this income and they
confirmed the above opinion.
We cannot sign the return until the income has been
reclassified. We are very grateful for your understanding and again apologize
for any inconvenience caused.
Sincerely,
Michael the Manager
The above scenario illustrates the need for tactful and
courteous communication. Had Michael handled the situation poorly, he would
have risked losing one of the firm’s biggest clients. Fortunately, it was
handled well because Michael remained polite and unassuming. Though it seemed
very suspicious that such an experienced firm should make such an egregious
error and not fix it, Michael did not make an assumptions or
accusations. Instead, he calmly investigated the matter and presented his
case to the extent that either Disney would have to file a return without PwC
and likely receive a penalty, or they could change the way they classified
their income. Respectful style and appropriate delivery are paramount.
Conclusion
Accountants are always looking for new and more creative
ways of saving their company and clients’ money. When we understand the
importance of the history of accounting, we will be far less susceptible making
the same mistakes. After all, a creative
form of accounting caused the largest business scandal in recent history.
Furthermore, the need for appropriate communication is constant. Accountants
cannot succeed in their field without understand how to express themselves in
the varying situations that they will encounter.
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